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TMI Blog2022 (7) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, the assessee has not allocated the corporate expenditures. Considering the entire set of facts, we observed that there was no debatable issue involving in this case. Accordingly, the order passed by the AO is correct as per section 154 - Respectfully following the above judgment of the Coordinate Bench [ 2017 (1) TMI 1390 - ITAT HYDERABAD ] in assessee's own case, the alternate plea of the assessee is accepted. Accordingly, we direct to the AO for disallowances of excess claim of deduction of exempted units has to be calculated as per para No.64 cited (supra). Accordingly, the appeal of the assessee is partly allowed. - ITA No.1723/Hyd/2016 - - - Dated:- 8-7-2022 - Shri Laxmi Prasad Sahu, Accountant Member AND Shri K.Narasimha Chary, Judicial Member For the Assessee : Shri S.P.Chidambaram, Advocate For the Revenue : Shri Y.V.S.T.Sai,CIT-DR ORDER PER SHRI LAXMI PRASAD SAHU, A.M.: This appeal filed by the assessee is directed against the order dated 26.09.2016 of the Learned Commissioner of Income Tax (Appeals)-5, Hyderabad relating to AY 2007-08. On the following grounds of appeal: 1. The learned CIT (A) erred in not appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following is observed. As per the provisions of section 80IC(7) r.w.s.80IA(5), the profits and gains of an eligible business, for the purpose of determining the quantum of deduction shall be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year to which the determination is to be made. It is seen from the computation of income statement that the assessee company claimed deduction of Rs.11 ,24,80,738 u/s 80IB (Yanam unit) and Rs.100,41,99,143 u/s 80IC (Baddi unit). As per the separate accounts of the above said units, the turnover of each unit I was Rs.78,66,36,730 (Yanam unit) and Rs.206,31,19,015 (Baddi unit) respectively and derived profits of Rs.37,49,35,794 (Yanam unit eligible for 30% deduction) and Rs.100,41,99,143 (Baddi unit eligible for 100% deduction). It is further observed that the following corporate expenditure was not allocated to these eligible units mentioned supra. It is seen from the profit and loss account vide schedule -16 operating other expenses and schedule 17- Finance ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (100%) 93,60,33,037 Less: Deduction claimed 11,24,80,738 100,41.99,143 Excess claim of deduction 77,92,222 6,81,66,106 Thus, the resultant excess claim of deduction needs to be disallowed and added back to the taxable income. Omission to do so resulted in excess claim of deduction u/s 80IB Yanam unit of Rs.77.92,222 and u/s 80IC 8addi unit of Rs.6.81 ,66, 106. The total excess claim of 'deduction u/s 80IB and u/s 80IC works out to Rs.7.59,58,328 with a tax effect of Rs.3,96,29,738. In view of the above facts, it is proposed to modify the assessment accordingly. For this purpose your case is posted for hearing on 03.11.2015 at 10.30 A.M. 4. Against the above letter, the assessee filed objections , which is placed on the paper book. 5. Accordingly, the AO passed the order u/s. 154 of the Act on 04.01.2016 and he observed that the assessee has claimed excess deduction u/s. 80IB of Yanam unit for Rs.77,92,222/- and u/s. 80IC Baddi unit of Rs.6,81,66,106/- which are to be disallowed. 6. Aggrieved from the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80IB and 80lC. In this regard our submission is as follows: 1 . In case of Dr.Reddy's Laboratories Limited for the AY 03-04 04-05, CIT(A) in ITA No. 0041/CIT(A)-II, Hyd/2012-13 and ITA No. 0042/CIT(A)-II, Hyd/2012-13 held that an issue which needs application of mind cannot be treated as mistake apparent from the record and does not fall under the purview of section 154. And further, the IT AT also upheld the order of CIT(A). II. Review of order by AO not permissible The learned A.O had undertaken review of the order passed u/s 143(3) on 28/10/2011 in the guise of rectification which is not covered by section 154. In other words, a review of the assessment order cannot be entertained ix] 154 of the Act. In the case of Parameswaran Pillai (K) Vs ITO (Addl) (1955) 28ITR 885 (Trav-Coch); RajeshwarPershad Gala) Vs CIT (1955) 28ITR 842 (Pun) it was ruled that, the power conferred by these provisions is a power to correct mistakes and not a power of review. In the case of CIT Vs United Mercantile Co Pvt. Ltd (1986) 158 ITR 41 (Raj); CIT (Addl) Vs Chemical Limes (1984) 149IR 325 (Raj) it was held that under section 154, an assessing officer can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the expenditure thereby not requiring the allocation of corporate overhead. Income Tax provisions governing deductions or tax incentives restrict the Scope of deduction only to the income derived from such undertaking. When the deduction is restricted only to the income derived from such undertaking, provision of this section cannot be extended to expenditure incurred at Corporate office while computing the deductions. The undertakings which are availing the tax deductions are independent in nature and have distinct factory license, management and work force and for all the practical purpose, are standalone undertakings capable carrying on themselves. Role of the Corporate office is totally independent and is meant to discharge corporate and administrative functions. When the income tax law restricts avail merit of tax deductions which are specifically derived from the undertaking, extending the scope of the section to corporate related expenditure does not amount to correct interpretation of law . 14. It is an admitted fact that the assessee company did not allocate any expenditure incurred on accounts of payment of remuneration to directors and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f payment of sales commission to Directors, remuneration paid to directors and other general expenses to the units enjoying deduction u/s. 10B /80HHC/ 801B of the I T Act, 1961. The assessing officer found that a sum of Rs. 10,40,07,000/- was debited towards remuneration to directors besides other expenditure claimed as Corporate expenditure which is not allocated to units enjoying exempted income. The assessee submitted before the assessing officer that each of the unit have their own administrative staff, offices and other expenditure which are accounted in arriving at the profit of the undertaking. However, the explanation was not acceptable to the assessing officer and the assessing officer held that it cannot be said that corporate expenditure was incurred only for other than the tax exempted unit and the directors have put in their efforts and work only for units not enjoying any deduction under the Act. Their services were available for the entire organization including the units enjoying the deduction under the act and the Corporate expenditure needs to be allocated to all the units. The assessing officer identified total expenditure to be considered for allocation amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rhead to the eligible units is at best a debatable point of law and any matter involving debatable point of law cannot be rectified u/s. 154; Having heard the assessee and having considered its submissions as regards the issue whether AO under s, 154 has the power to rectify such order, I find it necessary to reproduce the provisions of s, 154 which are as under: 154 (1) With a view to rectifying any mistake apparent from the record an IT authority referred to in s. 166 may,- (a) amend any order passed by it under the provision of this Act; [(b) amend any intimation or deemed intimation under sub-so (1) of s. 143; (lA) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-so (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter ich has been, so considered and decided ..... . Thus, cl. (a) of sub-so (i) gives the power to an IT authority to rectify any mistake apparent from record and amend any order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80IB Without allocating corporate overheads 4 Baddi Unit Section 80IC Without allocating corporate overheads 2. We submit that, the assessee has claimed the deduction under respective sections, without allocating the corporate overheads to the tax holiday/special units while filing return of income. 3. It is submitted that, the income expenditure which are related and directly allocatable to the special units have been quantified and deduction has been claimed for the special units. Draft assessment order:- 4. The Assessing Officer ( AO ) has issued Draft Assessment Order dated 31.12.2010. The status of deduction claimed for 4 units is as under in the draft assessment order:- S.No. Name of the Unit Deduction claimed u/s. Status in draft order 1 Paidi Bhimavaram Unit Section 10B 100% of deduction disallowed for want to ratification letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The status of the of deduction claimed for 4 units is as under in the final assessment order:- S.No. Name of the Unit Deduction claimed u/s. Status in draft order 1 Paidi Bhimavaram Unit Section 10B Deduction allowed after allocation of corporate overheads 2 Bachupally Unit Section 10B 100% of deduction allowed 3 Yanam Unit Section 80IB 100% of deduction allowed 4 Baddi Unit Section 80IC 100% of deduction allowed ITAT 12. Aggrieved by the Final Assessment Order on the issue of allocation of corporate overhead for Paidi Bhimavaram 10B unit, the Appellant herein filed an appeal before the ITAT in ITA.No.2229/Hyd/2011 raising the ground that corporate overhead should not be allocated. The Hon'ble ITAT vide order dated 2 Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no mistake in Final Assessment Order, which can be subject to rectification. However, in the subject case, the AO has sought to rectify the aforesaid Final Assessment Order, which is beyond his jurisdiction/power. 19. It is pertinent to note that for the subject AY for one 10B unit in Paidi Bhimavaram, the deduction was restricted by allocating net corporate overhead during the course of regular assessment proceedings. Therefore the principle of debatable issue does not arise for the same. However, in respect of 80lB and 80lC units are concerned the deduction was sought to be restricted in proceedings under section 154 of the Act. It is respectfully submitted that only in respect of adjustment made in 154 proceedings, it has to be adjudicated whether or not the issue is debatable. 20. Therefore, merely because the deduction was restricted for one unit under regular assessment, the same cannot be a basis to determine whether the said disallowance should be also restricted for 80lB and 80le units ignoring the fact that both the proceedings are completely different and only if the proceedings are legally valid the addition proposed could be sustained. In case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office while computing the deductions. The AO also cannot review his own order in support of his arguments, he relied on the following judgments 1.Hon ble ITAT, Hyderabad Bench in ITA No.150 151/Hyd/2014 for AY 2003-04 2004-05 2.Hon ble Surpeme court in the case of T.S.Balaram, ITO vs Volkart Brothers (82 ITR 50) 3. Hon ble Supreme court in the case of Mepco Industries Ltd vs CIT 185 taxman 409 4. Hon ble Gujarat High court in the case of Gujaraat State Seeds Coproation Ltd. vs. ITO 68 taxman.com 104 5. Hon ble High court Rajasthan in the case of CIT vs. United Mercantile co.(p.) Ltd. 27 taxman 404 6. Hon ble Kolkata Judgment in the case of CIT vs. Essel Mining Industries Ltd. 53 taxmann.com 292 7. Hon ble Bombay High court in the case of CIT v. Reliance Industries Ltd. 48 tamxnan.com 362 8. Hon ble Allahabad High court in the case of Kesharwani Zarda Bhandar vs. CIT 30 tamxnan.com 362 9. Hon ble chandigarh tribunal judgment in the case of S.R.Industries Ltd. vs. ACIT 62 taxmann.com 677 10. Hon ble chandigarh Tribunal judgment in the case of S.R.Industries Ltd. vs ACIT 62 tgaxmann.com 384 11. Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re eligible for deduction/exemptions as per u/s. 10B, 80IB and 80IC. The ld. AR of the assessee has vehemently submitted that there was a debatable issue to which the rectification cannot be made u/s 154 of the Act is not acceptable because, the corporate expenditures are not related only for the corporate office, the expenditure are relating to the controlling and managing of the entire business of the assessee, whether it is a exempted unit or non exempted unit. Therefore, the expenditures should be apportioned among the all business units of the assessee for true computation of the taxable profit. The assessee has not apportioned but the revenue authorities consistently apportioned the corporate expenditures and the Hon'ble ITAT in ITA No.2229/Hyd/2011 for AY 2007-08 held as under:- 59.As regards Ground No.13, brief facts are that the assessee claimed deduction u/s 10B of the Act for one Unit at Bajpally and another unit at Paidi Bhimavaram. During the assessment proceedings, assessee filed the copy of the Board of Industries only in the case of Bajpally Unit and for the other Unit, no such ratification letter was filed. Therefore, the AO allowed deduction u/s 10B for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kanmani Metals Alloys Ltd (183 ITR 327(Bom.) c) Tide Water Oil Co. (India) Ltd vs. CIT (353 ITR 300(Cal.) d) Income Tax Appellate Tribunal's order in assessee's own case reported in (2014) 30 ITR (Trib.) 434. e) CIT vs. Hindustan Unilever Ltd (2014) 42 taxmann.com 132 (Mad). 61. Without prejudice to the above contention, the assessee prayed that the expenses are to be allocated to the respective units by taking the note of the expenditure for allocation. 62. The learned DR however, supported the orders of the authorities below and submitted that the corporate entity also has invested the time of its employees on the effective functioning of the 10B Unit and therefore, the corporate overheads are to be allocated amongst all the Units proportionate to their turnover. 63. Having regard to the rival contentions and the material on record, we find that in the assessee's own case for the A.Y 2006-07, the Coordinate Bench of this Tribunal at Mumbai has considered this issue at Para 12.5 and following the decision of the assessee's own case for A.Y 2003-04, this issue is set aside to the file of the AO for re-examination of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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